INSURERS CLAIM VICTORY IN COURT RULING

INSURERS CLAIM VICTORY IN COURT RULING

An insurance industry association claims that a recent federal court decision supports its claim that U.S. corporations cannot pass along pollution cleanup costs to their insurers.

The 8th U.S. Circuit Court of Appeals ruled Friday that Continental Insurance Co., New York, was not responsible for the cleanup costs incurred by Northeastern Pharmaceutical & Chemical Co., a defunct chemical manufacturer formerly based in Verona, Mo.Northeastern was one of several defendants the federal Environmental Protection Agency had sued in an attempt to recover the cleanup costs associated with sites in and around Times Beach, Mo. The chemical company was the manufacturer of dioxins that other companies improperly dumped on the streets of the Missouri town, which was later evacuated, said Thomas W. Brunner, outside counsel for the American Insurance Association.

Continental Insurance Co., Northeastern's liability insurer between 1971 and 1974, filed suit in 1984 to settle the issue of liability, said Mr. Brunner, who is with the Washington law firm of Wiley, Rein & Fielding. The state of Missouri was named as a defendant because Northeastern had been out of business for nearly 10 years, he added.

Mr. Brunner said the appeals court's decision states that an insured's standard commercial general liability policy is meant to cover suits stemming

from property damage or third-party liability suits, but not suits filed to recover the cleanup of hazardous waste sites.

This has significant national implications, Mr. Brunner said. It will affect Shell, Love Canal and Westinghouse. It will affect a broad range of cases.

A growing number of Fortune 500 and other companies have taken their insurers to court in recent years in an attempt to cover the cost of cleaning up hazardous waste sites. The Superfund program, run by the federal Environmental Protection Agency, provides funds to clean up nearly 1,000 hazardous waste sites on its target list. The government, however, can then recover those cleanup costs from the company.

The American Insurance Association, which filed an amicus curiae in the Continental case, claims the court held that EPA cleanup costs are not suits seeking damages, the type of claims for which most liability insurance policies provide coverage.

The federal courts have now made clear that industrial polluters are not going to be allowed to shift the cost of cleaning up their hazardous waste under the Superfund program to their insurers, said Robert E. Vagley, association president, in a prepared release. Insurance companies did not agree to accept hazardous waste generators' burdens of complying with environmental requirements, did not charge premiums for that risk and entered into contracts that clearly did not cover this kind of expense.

An attorney for Shell Oil Co. said it is difficult to determine what effect the federal decision will have on the Shell case, now under way in a California Superior Court. Shell Oil Co., based in Houston, has filed suit against more than 200 U.S. and foreign insurers for the cleanup of hazardous waste sites in Colorado and California.

San Mateo Superior Court Judge William Lanam has finished hearing testimony in the first phase of the California case, which involves issues of policy interpretation. Jury selection for the second phase of the trial is expected to begin in April or May.

William Boyd, a partner with the San Francisco law firm of Brobeck, Phegert & Harrison, which represents Shell, said the California judge would not be legally bound by the St. Louis court's appeal.

It may or may not have some persuasive influence. That would depend on how sweeping the language was, and other factors, Mr. Boyd said.

But Philip Matthews, a San Francisco attorney who represents Lloyd's of London syndicates and other British insurers in the Shell case, termed the St. Louis court's decision promising.

It's very significant, said Mr. Matthews, who is with the law firm of Hancock, Rothert & Bunshoft. It (court) seems to be saying the cleanup costs are not recoverable under the CGL policy.

The outside counsel for Westinghouse Electric Corp., the Pittsburgh-based giant that has filed suits against more than 140 of its insurers, could not be reached for comment Monday.